REPORT: Pay czar planning up to 90% compensation cuts for top auto execs
When General Motors and Chrysler took money from the U.S. government to prevent being consigned to history, the two storied domestic automakers had no choice but to put their fates in Uncle Sam's hands. After two very brief bankruptcies and billions in bailout cash, America's favorite bearded relative is looking to take its own pound of flesh.
Automotive News is reporting that the Obama administration and the Treasury Department are planning to announce pay cuts of up to 90% for the top 25 earners at GM, Chrysler, GMAC and Chrysler Financial. U.S. pay czar Kenneth Feinberg reportedly negotiated the pay arrangements with the companies during four months of negotiations.
The reported cuts will put a deep gash into the pay of executives like Fritz Henderson, who reportedly earned $1.3 million last year. There is no word at this time whether the bonuses of top auto execs will also be trimmed. GM and Chrysler aren't the only TARP recipients to get a big-time pay cut either, as top execs from AIG, Bank of America and Citigroup are also going to experience the economic downturn in a very real way. According to AN sources, pay cuts will average around 50% between the seven companies. The AN source claims that AIG execs, for example, will not receive compensation that surpasses $200,000. Companies that have already paid back TARP money, however, will not be affected by the government-mandated pay cuts.
[Source: Automotive News, sub. req'd | Source photo by JUNG YEON-JE/AFP/Getty]
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Reader Comments (Page 1 of 5)
James Sonne 12:25PM (10/22/2009)
I don't understand how the government can retroactively apply conditions to the acceptance of TARP funds. Isn't that called extortion?
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Samurai Jack 12:32PM (10/22/2009)
We don't know that this is retroactive, as we don't know what conditions were attached to the money up front. None of us has seen the actual contracts.
The way I choose to look at this (rightly or wrongly) is that the government now has several seats on the board of directors of these companies, and they're exercising their rights as directors to set executive compensation.
James Sonne 12:35PM (10/22/2009)
I suppose that's a valid interpretation.
travisty 12:40PM (10/22/2009)
Part of the contract was "The US Government can unilaterally change any aspect of this agreement at any time." If you want to go visit the loan shark, you'd better be prepared to pay his fee.
Lad 12:50PM (10/22/2009)
What better incentive for greedy people to pay back their tax payer loans than to control their part of the free public money? And now the next shoe to drop will be to monitor the banking system to make sure their greed doesn't take the country down again.
Tool 1:11PM (10/22/2009)
This whole executive pay thing seems more like a populist outcry rather than a rational policy. While executive pay can be excessive, these companies still need to find talent on the open market, and sharp people aren't going to work for peanuts.
Plus, shouldn't the Govt have made these unilateral decisions as a condition of the loan/bailout and made the cuts at the time of loan disbursement? To do it now seems like B.S. to me.
odens 1:26PM (10/22/2009)
When the government (for that matter and company) owns 80% of a company it can pay their employees what ever it chooses. Here is how the board room goes. Who wants pay checks? Everybody, but the government raises their hands. Oh wait there is only person who gets to make that decisions, since we approved them taking over our company because we couldn't make decisions on own. Won't be getting checks this year.
Come on, lets face it. Company such as GM, Chrysler, AIG, B of A, Citi, etc. made such bad choices that their execs don't deserve to paid the amounts they were getting. If your company does well , then I don't care how much they make. However, when we lent you, and in the terms of Chrysler and GM gave you money, don't expect million dollar a year salaries.
zamafir 1:53PM (10/22/2009)
Makes sense, if you run a company into the ground with total ineptitude you're lucky to still have a job. I'd rather see everyone at the top level scrapped for more qualified people. Scratch that, I'd rather see executive pay slashed 90% for all those in the banking and investment sector who received government bailouts.
Cougs 1:54PM (10/22/2009)
While I agree that this is what happens when you take the loan/bailout (you do what the lender says), I think it sets a dangerous precedent. Yes, the people in line to take the hit are all carryovers from Old GM and probably deserve to get a smack down (personally, I would have just fired them back in the day). But, there is now little incentive for individuals who actually have the skill to make GM profitable or to do well in the long run to be brought into those same positions or for those who remain in those postitions to even try hard. Some of them might be altruistic, but others are just waiting for a good chance to jump ship.
Good riddence you say? Well, lets postulate that 10 of the top 25 say "You know what, screw you." and walk; who wants their jobs? Yeah, some people might say "Well, if we can turn this around, I can make tons on the back straight." but whose to say that they are the sort of people that should be going for those positions? If GM wants a turnaround, they need outsiders to come in and shake things up...and they can't afford to wait around a few years, they need it now (given the development life cycles for new vehicles, how hard it is to change consumer perceptions, etc.). But, if they have to worry about their pay going from 1 million plus benies (and no shares) to 100K, they might not even attempt it. Then again, the people going for those positions are rarely hurting in rainy day funds either :-).
It just seems conterintuitive for any growth to occur while simultaneously stifling the people that will ultimately cause that growth through their leadership. Of course, maybe this is the plan to clean up the top spots, but it just strikes me as more "hammer" than "chisel".
SimbaDogg 2:23PM (10/22/2009)
i'm stupid happy to hear this. After reading the article you had posted about Steve Rattner and how shocked he was at the condition/structure of GM management and how poorly they ran the company i couldn't be more enthused. I know its nothing compared to the retirement/legacy benefits thats GM complained about for so long that the UAW was sucking out of them, but these executives were seriously getting tens of millions of dollars a year for doing a crappy job. I can't think of any other industry that would pay itself so much, and give themselves raise after raise for doing crappy work. Actually, i can...the US Congress. But thats a whole 'nother story.
PJ 3:32PM (10/22/2009)
"...these companies still need to find talent on the open market, and sharp people aren't going to work for peanuts."
I can't speak for AIG or BofA, but when it comes to GM, this was precisely the problem: they *weren't* looking for talent on the open market. They were promoting from within the GM good old boy's club, giving people positions they really could not perform well in. This is a one-year slap on the wrist, and may jump-start these insular companies' search for talent outside the fishbowl.
Marc 7:48PM (10/22/2009)
Some here better review what happened when Clinton played this game. It wasn't pretty, or a valid exercise.
And it won't be now.
Judy Zik 9:35PM (10/22/2009)
Kind of reminds me of the old saying about "beggars can't be chosers". You go begging to the federal tit there are going to be strings attached. If you think this isn't already covered legally 5 times over in the contracts that were signed then you are a fool who has never done business with the government.
Personally I think this is the best thing that ever happened as part of the bailouts. It is the one and only way they can ensure that the governments will get paid back as fast as possible. CEO greed is the most powerful force in business today. It has far surpassed creativity. The top brass will get these loans off the books as fast as they can to ensure they get their ridiculously overblown bonuses back.
georgia.peach 11:18PM (10/22/2009)
Fritz is probably regretting helping Obama shove that knife into Wagoner's back.
Danimal 12:26PM (10/22/2009)
How lucky would you feel to be the 26th highest earner.
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Tael 12:42PM (10/22/2009)
lol
artandcolour 12:49PM (10/22/2009)
it's only for a year, and there is nothing in the statute that will prevent the execs from earning twice as much the next year. i wouldn't start feeling sorry, or packing brown bag lunches for these asshats.
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CkretAjint 12:29PM (10/22/2009)
$1,300,000 / 365 days = $3,561.64 a day for an entire year.
That is ridiculous. I am glad they are slashing/holding back on their bonus!
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Neil41487 12:32PM (10/22/2009)
Probably more like $1500 a day after taxes, but still an absurd amount
James Sonne 12:36PM (10/22/2009)
That money comes from somewhere: mostly the profit off of GMAC loans, which totally rip off customers. For some reason, customers are more eager to get into a piece of crap vehicle than to stop and ask why they're bending over at the dealership.